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Budget 2022: LIC IPO 'shortly,' but path fraught with challenges

Budget 2022: LIC IPO 'shortly,' but path fraught with challenges

The government is yet to file the draft document with Securities and Exchange Board of India (SEBI); market volatility and overall subdued sentiments of global investors also key challenges.

Budget 2022: LIC IPO 'shortly,' but path fraught with challenges Budget 2022: LIC IPO 'shortly,' but path fraught with challenges

While presenting the Union Budget 2022-23, finance minister Nirmala Sitharaman said that the initial public offer (IPO) of insurance behemoth LIC is “expected shortly” without sharing any more details related to the exact timeline. 

It is being widely believed that the government is targeting the LIC IPO to be launched in the current financial year. But with just two months to go before the fiscal ends, it is going to be a herculean task to say the least. 

The proposed mega IPO – the biggest in the Indian capital markets till date – has many stages to clear before it can actually be launched in the public markets.  

Regulatory approval

The first step is to file the draft document with capital markets regulator Securities and Exchange Board of India (SEBI), which takes around two months to clear the document. Even if one assumes that the regulator will clear the document in a record time, it will be a tough ask to get it done in under a month’s time given the size of the public issue. 

The regulator on an average has traditionally taken well over two months to clear an IPO document though there have been reports stating that the government would push the regulator to clear LIC’s draft in around three weeks. 

While there has been no official word on the size of the public issue, it is expected to be in the range of Rs 70,000 crore to Rs 1 lakh crore. The magnitude of the offer size can be gauged from the fact that cumulative fund raising through nearly 70 IPOs in 2021 was a little over Rs 1 lakh crore. 

Incidentally, the government is trying hard and has already extended the tenure of chairman M R Kumar and the merchant bankers are busy reaching out to global and domestic institutional investors.   

Market sentiments, new norms

Indian stock markets were among the best performing globally in 2021. The current calendar year, however, has presented a completely different scenario. The volatility has risen and there is an inherent weakness that has been pulling the markets down. 

At one point of time in January, the benchmark Sensex was down over 3 per cent when compared to the 2021 close of 58,253.82. Since then, it has recouped the losses and is trading in the green but has seen huge bouts of volatility. 

If, in case, the IPO is not launched in the current financial year, then it will also have to face the new regulatory regime related to IPO financing – a huge factor driving IPO subscription in the high networth category. 

Last year, the Reserve Bank of India announced a cap of Rs 1 crore per borrower on IPO financing for non-banking financial companies (NBFCs) with the new norms to come into effect from April 1.

Lastly, the government will also have to face the overall cautious stance of foreign portfolio investors, who have sold shares worth $4.5 billion in January. This was on the back of net sales of $5.12 billion between October and December 2021

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Published on: Feb 01, 2022, 7:20 PM IST
Posted by: Tarab Zaidi, Feb 01, 2022, 7:16 PM IST